MGIC Investment Corporation (MTG)

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MGIC Investment Corp. (MTG)

Q4 2008 Earnings Call

January 20, 2009 10:00 am ET


Michael Zimmerman – SVP, Investor Relations

Curt S. Culver – Chairman, CEO

J. Michael Lauer – EVP, CFO

Lawrence J. Pierzchalski – EVP Risk Management


Donna Halverstadt – Goldman Sachs

Dave Katz – JPMorgan

Jordan Hymowitz – Philadelphia Financial

Mike Grasher – Piper Jaffray

Scott Frost – HSBC

[Mike Randall]

Scott Frost – HSBC

Ron Bobbin – Capital Returns

[Brian Long]



Good day ladies and gentlemen and welcome to your fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Mike Zimmerman. Please go ahead.

Michael Zimmerman

Thanks Mary. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the fourth quarter of 2008, are Chairman and CEO Curt Culver, Executive Vice President and CFO J. Mike Lauer, and Executive Vice President of Risk Management Larry Pierzchalski.

I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC’s Web site, which is located at under investor information, includes additional information about the company’s quarterly results that we will refer to during the call and includes certain non-GAAP financial measures.

As we have indicated in this morning’s press release, we have posted on our Web site supplemental information containing characteristics of our primary risk in force, and flow new insurance written. As well as other information which we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed on the call, are contained in the quarterly earnings release.

If the company makes any forward-looking statements, we are not undertaking obligation to update those statements in the future, in light of subsequent developments. Further, no interested parties should rely on the fact that such guidance or forward-looking statements are current in anytime other than the time of this call or the issuance of the press release.

Now before I turn the call over to Curt, I wanted to let all the participants know that we’ll be trying to end this call a little bit before 11 o’clock eastern time, about five or ten minutes before the hour, given the scheduled time of the inauguration ceremony. We’ll try to get all participants that wish to ask a question; however, if your question has not been addressed during the Q-and-A, please feel free to call our investor relations department; that can be reached at 414-347-6596.

Thank you, and Curt?

Curt S. Culver

Thanks Mike, and good morning. For the fourth quarter, we reported a net-loss of $273 million and for the year a loss of $519 million. During the quarter, we insured $5.5 billion, down from $9.7 billion last quarter and $24 billion a year ago. The lower volume reflects the much more stringent underwriting guidelines in increased pricing that we have in place versus a year ago, as well as the increased pricing that GSEs have added to conventional loans.

Our market share remains strong, approximating 23 to 24%, but our industry has lost significant business to the FHA. Persistency continued to improve in the quarter, standing at 84.4% versus 82.1 last quarter, and 76.4% a year ago. Our quarterly run rate was 88.2% versus 83.6 a year ago.

Insurance in force of $227 billion was down slightly from last quarter, but up 7% from last year’s total of $212 billion. The average premium yield on the insurance portfolio was 62.4 basis points, up from 60.2 basis points last quarter, primarily reflecting $11 million lest being seeded to captives during the quarter.

Underwriting expenses were $66 million in the fourth quarter versus $64.6 million last quarter, and $74.6 million a year ago. We have made staff and expense adjustments throughout the year reflecting our lower volumes. So I think the fourth quarter is a good indicator of the run rate for expenses in 2009.

Losses incurred in the quarter were $903.4 million, up from $788 million last quarter, are reflecting a $30,288 increase in the delinquency inventory in the quarter. Claims paid in quarter total $310 million, down from $330 million last quarter. For the year, claims paid totaled $1.4 billion. A year ago, we thought paid claims would approximate $1.8 to $2 billion. The reason we didn’t pay more in 2008, was a combination of reasons, including foreclosure, moratoriums, servicing delays, court delays, MGIC fraud investigations, borrow or loan modification, discussions with servicers, MGIC loan modifications, and MGIC claim rescissions and denials for misrepresentation.

While it is difficult to assess the impact of the above factors, let me try to quantify those numbers where MGIC is involved. In the fourth quarter, MGIC worked with servicers/investors to modify approximately 63 million of MGIC insured loans, and for the year modified approximately $235 million worth of loans. By way of comparison, in the fourth quarter a year ago, that number was $28 million, and for the year $82 million for all of 2007.

These figures reflect our traditional re-default rate of approximately 50%, as loan mods historically do not always lower the borrower’s payments. But with today’s new modification programs centered on reducing the borrower’s payments, we would expect a higher success rate going forward, although we’re not sure to what level.

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